Good morning. I want to welcome everyone to our Second Quarter Fiscal Year 2025 Earnings Call. For those listening on the phone, most of you have likely connected through our website, where a presentation deck is available. You can access it by visiting purecyclewater.com and clicking on the link. I will guide you through the presentation as we go through the slides. Joining me today are our CFO, Marc Spezialy, and our Controller, Cyrena Finnegan. I appreciate their presence this morning and welcome you all to the call. Let’s begin by discussing our forward-looking statements. Any statements in this presentation that are not historical facts are considered forward-looking. I’m sure you’re all familiar with these statements. I want to take a moment to acknowledge our leadership team, as our success is driven by the individuals we work with in management and our board of directors. Our board offers significant experience and guidance to the company, and it's reassuring to have such strong leadership during unpredictable market conditions. Now, let’s dive into our financials and highlight our second quarter. We had an excellent quarter, and I want to showcase our financial performance. We continue to focus on monetizing our water, land, and single-family rental assets. In the second quarter, we generated approximately $4 million in revenue with around $1.5 million in gross profit, resulting in a 38% gross margin. Much of this margin is attributable to our royalty income. Our mineral royalties from the Sky Ranch property acquisition have significantly contributed to our bottom line, leading to continued net income and earnings per share. Year-to-date, we have achieved around $10 million in revenue, with a gross profit margin exceeding 50%, along with ongoing growth in earnings per share. As many of you who follow the company are aware, our second quarter is typically our weakest, partly due to the seasonal nature of our business, where we construct and deliver lots for homebuilders, which is more challenging in Colorado during winter. Nevertheless, we have seen solid performance this quarter compared to our trending quarters over the past three years. The profit fluctuations are expected due to seasonality and timing in recognizing revenue based on completion percentages, but there are no significant concerns regarding quarter-over-quarter gross profits; we continue to develop these lots. We have three phases currently under construction, representing a key investment for driving revenue. Our net income remains strong, bolstered by having multiple phases under construction and substantial royalty income from oil and gas, which provides us a high profit margin. This income contributes directly to our bottom line, and we are also seeing continued growth in earnings per share quarter-over-quarter. Looking ahead to our year-to-date performance compared to last fiscal year and our guidance, we had projected approximately $30 million to $31 million for fiscal '25, and we are about $10 million along that trajectory. This sets us on course to meet our goal, especially considering Q2 is typically softer and Q3 and Q4 are anticipated to be high-growth periods as we orchestrate our lot deliveries across the ongoing phases.

Taking a look at gross profit also, we're on track for that in terms of our guidance as well. Year-to-date net income again, really solid continuing performance in all segments of the business, whether that's land development, water utilities, as well as single-family rentals and then earnings per share. So we had about $0.20 earnings per share, a little bit shy of about 50% of our guidance, but really looking to meet that guidance through our fiscal year-end. So if we want to break this down by each individual segment, taking a look at our Water Utilities segment, it was a very good quarter for us on that. That's largely driven by the receipt of tap fees as we open up each new phase of our development. That's when we start to recognize all of those capital fees that we have for the Water business. And so we get those tap fees in. Those are paid by our homebuilder customers at the time of building permit applications. And so we have probably about half of the tap fees received from filing 5, which we delivered sort of end of last fiscal year, last summer. And I'd say we've got close to maybe 75 vertical homes in there. So the builders are very aggressive. They're getting out there, building a number of spec homes as well as homes that are sold. They have model homes up in both the filing four, which is our Phase 2a, as well as some of those in 2b, which is the more active one. What you'll note in this segment for Water Utilities is oil and gas deliveries are a little bit weak. That's what we did forecast. We knew that was going to be a little bit weaker than we had last year, and that was predominantly because most of our operators really were working on a large block of well permits. I think there's more than 200 well permits under production, both for the Lowry Ranch and the surrounding areas of the Lowry Ranch. So we've got a lot of that activity that is going to occur in fiscal 2025, which will start drilling probably late '25, early '26 to see a bit more of that activity in fiscal year 2026. But again, the Water Utilities segment is doing great, continue to add new customers to the segment. So we continue to build that recurring revenue segment for that. This is kind of a little bit of a comparison of the oil and gas, which we did forecast that was going to be a bit softer. And so you see that by comparison over year-over-year activities. Oil and Gas, as you know, is a very variable segment. And a lot of times, it really is both global price comparison to how the price of oil is to how quickly these operators dial this up. The field itself continues to just perform great for all the operators. I think that it's derisked. They have a very high degree of certainty as to how each of these wells perform. We can see that in terms of our royalties off of the wells that were drilled on Sky Ranch in 2024. And so you see a lot of that continuing activity where they will continue to invest in that based on their permits and kind of their internal processes to how they want to deploy their capital. But very good segment for us, very high margins for us, and it continues to allow us to monetize and pull forward some of that infrastructure that we continue to invest in our Water Utilities segment. Moving on to Land Development. This kind of highlights each of the phases. We have four phases that we actually expanded, adding another fifth phase. So you'll see a 2e coming up in the presentation in our second round of investments into infrastructure for Sky Ranch. But this really illustrates where we're at in terms of three phases concurrently going on. We have Phase 2b, where we delivered those lots last summer. We have a bit of punch-out items on some landscaping issues and things like that that will round out the rest of this year as we roll into the spring. But that's where most of the builders are currently going vertical. They've got a number of homes that are up available for sale or at various components of that. And it seems like once they finish those homes, there's a ready and robust market for those. I think that's attributable mostly to the price point that we find ourselves in that Entry Home segment, and I think that's the most attractive segment in the market, not only in the Denver area but nationally. This also highlights where we're at with the other phases of this. 2c, 2d really highlight both the lots for sale as well as our single-family rental lots. And so as you see those accumulating on each individual phase, we have 17 units that we've got under contract that are at various phases of permitting and starting of construction in Phase 2b. Then we're rolling into Phase 2c, where we delivered the over lot grading. We finished the utility side and really now down to the curb and gutter and the paving side of that. And so that should deliver by fiscal year-end. Currently, we are about 48% complete there, and that will round up to the mid-90s by fiscal year-end. Then we finished the grading on Phase 2d and have started our utility work on that. So we're midway through our lot delivery contract structure where we get payments from our homebuilders on increments of phases of delivery. About 1,300 lots on the for-sale side and about 100 lots on the single-family rental side. So it gives you a very strong picture of how we're accelerating the development of these land assets and delivery of lots. The Single-Family Rental is highlighting that Q-over-Q performance, really not a lot of change there. We still have the same 14 homes that have been completed. Our rentals are still very strong. So we continue to have a high occupancy rate there, and then, again, very great margins on how we do that. We've talked about this a lot in the past on why this is so attractive. It really is a formulation of being able to roll in the equity value that we have on the land side, as well as the water utility side, being able to deliver these lots where our homebuilders who are our partners on buying the lots are also our partners on helping us build these homes. So they have a great delivery device on building the homes. We have the advantage of keeping that equity within the lot themselves and renting them out at the full fair market value of those assets. The book value of those assets are about 80% of the fair market value of those assets. So we very much continue to enjoy a great segment on the Single-Family Rentals. I just want to quickly review kind of take this up a few after the financial performance and really highlight how the company is structured, how we look at each of these individual segments and how they interrelate to each other. At a DNA level, most of you know, we're a water utility company. We have a portfolio of water rights that we have acquired many, many years ago, some more than 30 years ago. We take those water, we bring that to properties, both properties that we own as well as properties that are in our service area and properties that others own where we can deliver that as a water utility service, both water and wastewater service. In some cases, where we own the land, we actually are developing that land. Right now, that's confined to the Sky Ranch community. It's about 5,000 single-family connections. We're about 20% built out there. That allows us to be able to vertically integrate ourselves and do the horizontal infrastructure. That's a very valuable component in the marketplace because very few people are doing that. Homebuilders really prefer having a fixed fee where they have someone that will deliver that lot for them. We partner with them to deliver those lots. They sell those homes, generate a water customer for us. Then in a portion of that portfolio, they also build that home for us, and then we rent that out as a single-family business. Each of these segments interrelate to each other. They're really building on each other, and they're complementing each other. One does really feed into the next, and I think it has a great business value-added proposition for both us and our shareholders. Let me go into detail about each of these areas. I will try to be brief since many of you are familiar with this. Our Water segment has approximately $65 million in total assets, which includes water rights, infrastructure such as pumps, wells, pipes, and water treatment facilities that provide potable water. Our portfolio serves around 60,000 connections. We are in the early stages of monetizing this portfolio and realizing its value, but we continue to add connections each year. In terms of system capacity, we have substantial capability and are fortunate to exceed the water delivery capacity needed for demand. We typically utilize this excess capacity to serve industrial applications, like oil and gas. Regarding our portfolio capacity and capital fees, the 60,000 connections can generate approximately $2.3 billion in tap fees, which represents about a 50% margin on both capital and operating sides, indicating the potential of our Water segment. Now looking at our Land segment, we have generated about $77 million from lot sales since the project began and we are around 20% completed. There remains significant potential in the Land Development segment, which has strong gross margins. The favorable margins stem from our acquisition of Sky Ranch at a reasonable price during a time when interest was low, specifically in the 2010 Great Recession. We are focused on monetizing that asset and being strategic with our capital allocation while seeking additional opportunities. Given the current uncertain market, there are often great opportunities for those who are well prepared, and we believe we are well positioned to take advantage of those. This is just a highlight of each of the phases that are subcomponents of that. We completed Phase 2a. All those homes are fully occupied. In Phase 2b, as you can see there, about 70 homes that are up and constructed. In Phase 2c, you can see some of the alleyways being poured, and many of the streets have been graded out. A lot of the utility package has been completed, and we'll really have that strong push to deliver those finished lots before fiscal year-end together with the weather. We time that out such that we can be in that season where we can do the concrete and asphalt where we're not competing with mother nature on that. Then Phase 2d, that's fully graded. Equally, we're going to get the utilities in there and look to see if we can get those lots finished by the end of the calendar year. Sometimes we have to race against mother nature. It depends on whether or not we get an early-season winter in October versus a late-season winter after November time frame. We'll continue to press on Phase 2d. We will have another phase of this; we have a sub-phase of that, which is about another 150-plus or minus units that are Phase 2e, which we are planning right now, and then we'll extend those opportunities to our existing portfolio of builders. This kind of highlights the overall capacity of our land assets. As I mentioned, we're about 22% developed. If you take a look at the residential side, we've delivered about 1,300 single-family residential lots through Phase 2. Our commercial lots, we have about 800 single-family equivalent commercial. We're just converting those to a commercial. Those are done a little bit differently. Priced per square foot as opposed to per lot, but this allows us to do some forecasting to give you a comparison of how the overall opportunity relates in the Land Development segment. Combined, we look at that as a very strong performance. The overall combined performance is about 18% right there, around close to 20% of the build-out of Sky Ranch when you combine both the residential and the commercial. Single-Family Rentals, I've highlighted some of the opportunities there and really the attractive nature of it, and it's maximizing the land development as we continue to provide value to the community for what it is that we do on the parks, the open space, partnering with our national charter, National Heritage Academy for schools. It generates continued recurring revenue. Each unit provides close to a little more than $30,000 a year in recurring revenue on the rental side. It does leverage the market demand and produces great returns for the company. So we will continue to invest in this segment. You'll see a little bit more acceleration on that through the latter phases of this as we continue to build out the site Phase 2. Some of the metrics on our existing portfolio. This highlights the difference between fair market value and really the balance sheet impact. We have about $5.3 million of capital costs on that and a fair market value of about $2 million on that. So we still have a lot of appreciated assets on there that are not able to be discerned through the balance sheet. This is kind of a highlight of where we're headed with that single-family portfolio. You're going to see Phase 2 grow substantially here in 2b, c, and d. We're going to move from about 1,400 homes close to 100 homes on that. This is some of the metrics that will drive to that. The fortunate thing for us on this one is because of the equity value that we have in the land and the water utility, this is a great one where we can leverage that portfolio. We have relationships with three different banks that are very excited to help with this portfolio and really give us a lot of that capital and leverage to be able to capitalize on using that above our balance sheet capacity. One of the great aspects of the company is our balance sheet and liquidity position. Currently, we have over $20 million in liquidity, with cash and investments amounting to approximately $17 million. The restricted cash we hold is used to secure lines of credit and letters of credit for the county regarding our performance in developing the infrastructure for the Land segment. The county appreciates this because it allows us to obtain building permits in some cases ahead of completing certain aspects of land development. Most of the roads, curbs, gutters, water, sewer, and storm drainage are already completed, while some landscaping is seasonal. By assuring the county through a letter of credit that we will finish the remaining work, they are granting us early building permits. This is highly beneficial for our homebuilders since it allows simultaneous construction of homes while we finalize landscaping. There’s minimal risk associated with that restricted cash, which we consider part of our balance sheet. We also discuss the note receivable from reimbursements. In addition to receiving revenue from lot sales through our homebuilder partners, we get reimbursed for much of the infrastructure we complete. Local municipalities reimburse us as they issue bonds. In 2024, we had a bond offering of around $25 million, which we paid down, enhancing our liquidity. Evaluating the overall liquidity of the company, we find ourselves in an excellent position to manage challenging markets. While I'm unsure if we are currently in a challenging market, our strong asset base also provides opportunities to continue investing in land and water assets. I'll talk a little bit about outlook, and this is kind of a repeat of slides from our fiscal year-end. We take a look at our short-term outlook, and that's kind of a three to five-year outlook, customer growth, so development of Sky Ranch up to about 2,500 units, consistent tap sales through the remaining phases of that. As those customers come online, it increases the overall recurring revenue. We've got annual tap fees that increase year-over-year. You've seen that as we continue to add new connections to the system. Then longer term, with the build-out of Sky Ranch, we've really kind of tried to highlight what we have in the book, what we have in our portfolio for full build-out and monetization of these segments. So they're very attractive returns for us on that. That build-out of Sky Ranch could be in that seven-year range. It depends on how we build out that commercial segment and some of our participation in there. We like opportunities where we can joint venture some of that commercial opportunities. We are working on those commercial opportunities as well as developing a new interchange right there at the interstate where we've got some mill levies that are set aside for that, so that can come off of an independent bond financing. That's a project we're looking at in this short-term aspect that will increase the overall accessibility of the site as well as the commercial opportunities. Land development, steady lot sales through the next five years. We continue to increase our lot margins. Largely because most of the heavy lift is complete. We've got most of the off-site infrastructure. The last remaining key element will be that interchange. We do have a bond set up and ready to go for that, that will cover that cost. We still have the most valuable land yet to come, which will be the commercial development, and we want to continue to look at all of our opportunities on the commercial side. Single-family rentals, we talked significantly about that. But going from what we have today to maybe more than 200 homes and continuing to look at the strength of that, so 200-plus homes through the build-out of Sky Ranch. We would look to do each of these elements and a future acquisition. To the extent that we continue to expand our land portfolio, we look at all three of these segments being able to be contributors to what it is that we're looking for. This will provide some guidance on what we expect for 2025. Looking at the past three years, we see a continued acceleration and growth in our revenues year-over-year. We anticipate another strong year in 2025, particularly with the short-term aspects as we start bringing in commercial land development, which will positively impact the company's revenue and earnings per share. We remain focused on executing and showcasing the value of these assets, aiming to enhance shareholder value with both fiscal year guidance and short-term insights, as well as development plans for Sky Ranch. The build-out involves what we currently have in inventory and is about executing on continuing to develop Sky Ranch rather than needing to grow our inventory further. We're actively participating in the market. In the third quarter, while navigating a somewhat unstable market, we have maintained our bid to buy shares. We will also explore reinvestment opportunities in land and other ventures. Turbulent times often create opportunities, and we've observed an increase in interest regarding our target acquisitions. We want to ensure we have the capital available to invest in the three phases currently under construction, and as acquisition opportunities arise, we aim to be prepared to act. This outlines our approach to managing our capital. So with that, what I'd like to do is open it up to questions. I think what we'll do is we'll make everybody's mic live. If we get some feedback or something like that, we may change that format. But if anybody has got a question, you can either raise your hand in the bar up there. And then we can identify you, you can call out or just kind of sing out, and we'll see if we can have an orderly Q&A here. So with that, we'll open up the mic. And if anybody's got a question, go ahead and sing out.

Mark, it's Bill Miller. Good morning.

Good morning, Bill.

So getting back to the recurring themes, where do we stand on I-70? We keep talking about it, it's going to be great. But when do you think that will come to any kind of fruition? Secondly, we've talked historically about acquisitions, and you say there's a little bit more appetite on the part of the seller. Is that going to result in some transactions sometime? Or are we still just talking about people that are reluctant to sell their land because you've done so well?

Let me address your first question about I-70. Yes, that interchange has a complex regulatory environment. We've been collaborating with Arapahoe County, which is the primary sponsor of this project. For the past three years, we've been working on the 1601 permit regulation for it and are close to submitting it to CDOT. We expect them to take about four to five months for their review. We anticipate being able to secure a construction permit for the interchange by the end of this year. After that, we plan to go to market for bonds at the end of this year or the beginning of 2026 to start construction. We already have an existing interchange, so there won't be any disruption; this is an ideal situation where we can construct the new interchange without affecting current operations. The interchanges will be about 600 feet apart, aligned with section lines, which is what CDOT prefers. We're optimistic about a smooth transition of this infrastructure. Regarding acquisitions, we're attentive to our target acquisitions and the landowners. While opportunities exist, sellers have personal reasons that influence their decisions, whether related to estate planning or personal circumstances. We benefitted from the uncertain market conditions when we acquired Sky Ranch, which positioned us well when others were hesitant to buy. Typically, opportunities arise during times of uncertainty or change. We'll see if this prompts sellers to move forward. I can't offer guidance since I don't currently have any contracts in place. However, acquisitions remain a key focus for us, with special attention to land rather than water, unless water is strategically relevant to our existing portfolio. We have continued our investment in the company through share repurchases, with land acquisition remaining a top priority.

Just before we go into the next question. We have allowed you guys to unmute yourselves. But we don't have the ability to unmute you. If you are on the computer, you'll still have to click the microphone button to get unmute. If you're on the phone, you could dial 6, as well as making sure your phone is not on mute.

Looks like we have a question from Nigel.

Hey, how are you guys? Looks like a decent quarter for the seasonality issues. One piece of information I find very helpful is essentially what your builders are telling you about demand. So if you could just give us a little bit of an update on demand in the Denver real estate market overall. Is your price point advantage holding up against that market? I'm a little puzzled because I’ve always perceived that it would be very heavy rental demand. Just puzzled even in a winter quarter as to why there isn't demand happening on the family rental side. Just wanted a quick update from you on the demand situation there as well?

Good question. You're right, I think our biggest opportunity is our price point. One of the things that we have seen is a push for affordability from the administration, and a component of that is going to be the interest rate environment. I think interest rates have been all over the map, but they've been trending a little bit softer, allowing that price point in there. A lot of the builders when interest rates went from 3% to 7%, found themselves in a position of really competing by buying down that interest rate and offering the incentives as an interest rate environment. I think that has kind of burned off. I think the buyers out there are more acclimated to this being the current interest rate environment or the normal interest rate environment rather than to have an expectation to try and time that out. As a component of consumer sentiment, I think that's a favorable outcome, both for the builders and for people that are delivering these lots. We can take a look at a number of investments that are being made, and there's a number of projects that continue to focus in the I-70 corridor. The majority of all the development activity, whether that's going to be master planned communities or any of that, is really concentrated in that I-70 corridor. We find ourselves in the right segment of the market, not only in terms of the price of the delivery but also where most of that development is occurring. Traffic throughput, I will tell you, our builders, we've got probably 70 homes out there, they're building like crazy, and they're building on spec. They have a lot of confidence to put that investment in there and an understanding of, okay, this is the right price point for us to be able to take that inventory. All of that activity is really giving a lot of incentives for Sky Ranch to be among the high performers out there. We'll see how that continues to absorb over the next 18 months, but that's really what we're trying to do in that market. Your second question relative to the single-family rentals, we had a bit of a gap between Phase 2a and Phase 2b, and that was when interest rates went up. Our builders asked us for a 90-day pause on delivering some of those lots, and that has gapped us out on that. We are seeing very strong demand for each of these units that we're bringing online. The problem is that we've been trying to get these permits and phases online. Delivering the Phase 2b last summer, we went straight into contracting for another 17 units. The county updated their building code. I think our builders, some of our builders got grandfathered in, so that's where they have like that 75 units out there. Some of the builders were in the process of making those applications. A lot of those things are getting released right now, and a lot of the inventory of the 17 homes we have in that phase are going to come online now. There's a little bit of a gap there. It certainly wasn't from a market standpoint or a desire standpoint. It was just a little bit of timing variance on that, and we're teed up for the rest of the phases to be able to continue to accelerate that.

So you're expecting a stronger environment in terms of sales and rentals through this calendar year versus last year?

Yes, very much so.

Mark, Yes, this is Elliot. Can you hear me?

I can.

I'd like to go back to your answer to question number 1, when you said that your second most important priority is to acquire new land. Just for those who may not have heard your February call, which was recorded and is available on the website. It lasted 1.5 hours, but it was filled with information. For those who didn't hear it, the thesis, if I can call it a thesis, was what happens, how valuable is Pure Cycle if they cannot make another land acquisition? I'm not going to try to summarize what the answer to that was, but it was a very impressive number. Anyone who is seriously interested might want to take the time to watch that call because there was a wealth of information available. I don't have a question, but I just want people to know that that asset is available if they're interested.

Yes, I appreciate that. One of the challenges that we have is I think we're a partial victim of our own success because we have acquired these assets. I think we've done a very good job of acquiring assets that are favorably valued for us and then also been able to be good stewards of that over time. The market of those assets has appreciated significantly. That call highlights how to monetize some of these numbers. If you take a look at the back half of these slides, it tries to monetize this. It's tough for us to give you full guidance on that. But we can say, here is what we make per lot. Here is what we do on the water side. Here is what we're doing on the single-family rental side. Here's how that generates the monetization of those legacy assets as well as what it does on the recurring revenue side. I would say the company has had a strong disconnect between what we believe the value of those assets is and what the market capitalization is. We try and allocate some of that money to bridge some of that gap.

Good morning. How are you?

Good morning.

Mark, I want to ask a couple of chicken and egg questions. I'm assuming that the development of the interchange is the egg and that the commercial development is kind of the chicken. The value of the commercial development goes up after there's an interchange in there. Is that basically correct?

Yes, I think that is true. I will say that I think the value of the commercial, we have an existing interchange. The new interchange gives you more capacity; it's a freer flow of traffic. The proximity and the location along I-70 give you both of those elements. The interchange is kind of a component we do need as we continue to build out. We've tried to time those two out such that when the residential was good, we didn't have constraints on the transportation and then the attractiveness of having a bigger, fuller scale interchange.

Right. I'm assuming that the demand for the commercial will go up when they see a bigger and better interchange.

Absolutely. I would not argue with that thesis.

Okay. That was the first chicken and egg. The second one was kind of interesting because I think for the first time, you said that the land acquisition is a higher priority than additional water right acquisition. I don't think I've ever heard you actually say that before. Is that because what you'll be able to do with land is going to be faster than what you're going to be able to do with additional water? I mean you have water for 60,000 units. You don't have land for 60,000 units. Presumably, you have water and inventory. In order to utilize that water, you need additional land. Is that the correct interpretation of the chicken and egg?

Yes, exactly right. I think we're longer on the water side than we are on the land side and really want to be more aggressive on the land side.

Bob Schloss is trying to ask a question.

Who is?

Bob Schloss.

Yes, I tuned in late. So this question has been answered. Let me know. I'm interested in how the school is doing. I think it's a key component of the entity.

Great question. It is a great question. You're right. Having a local school, having a K-12 campus right in the middle of what we're doing is tremendous value. I will say our partner on that, National Heritage Academy, is a great partner in that. We are their first K-12 campus. They have other campuses that are K-8. They have high school campuses, but we're the full K-12 model. We're looking at breaking ground on the high school of that later this year for the delivery of high school in the 2026, 2027 year. What we've got is the existing K-8 system. They'll go K-9 next year because they want to ensure that they can continue to keep the kids there as they start there and then have that high school for full build-out. The capacity of the full K-12 model will be something like, I think, 1,700 kids. It will accommodate all of the kids in Sky Ranch, the full build-out of Sky Ranch plus a little bit more so that we can service some of the surrounding areas. Wonderful group. The overall feedback I'm part of is I chair the school Board on that. I attend a lot of the parent conferences they have there. The feedback I get is that the school is just a terrific asset for the community, a terrific model. They love the NHA model, how they deliver the education, the moral focus that they have, everything they do, I think, is a terrific opportunity. I thank you for your continued support on that school. I know you continue to reach out with me on that and continue to touch on that. Thank you for that support.

There's one caller that ends at 6841; you're off mute. I don't know if you had a question.

Yes, this is Greg Vennett, one of your shareholders. Washington, D.C. or the new administration has talked about affordable housing and the need for it. They've also talked about the possibility of using federal land or giving federal land for affordable housing. My question is, do you have water near or is there land near our properties that could be federal land that you could basically obtain for $1 and then with the agreement that you would create affordable housing?

That's a good question. We are not adjacent to any federal land. But I will say that our service area is owned by the state, the State of Colorado. The State of Colorado recognizes, just like the federal government, the importance of affordable land and affordable housing. We don't control the land; our water and our service area are all on that state land. It is a massive inventory of land. It's 24,000 acres of property. It's located in the I-70 corridor. It's probably the single most valuable asset that the State of Colorado owns in the State Land Board. Clearly, they're attentive to not only the affordability aspect but ensuring that what they do with that land generates revenue for the public education system, the K-12 public education system. Those are great opportunities for us to partner with them. We'll provide the utilities regardless of whether or not we develop the land in conjunction with them or somebody else develops that land. They're currently evaluating what opportunities they might want to consider for that. They've taken a look at that land at various segments over the last 30 years regarding the inventory and the carrying capacity of that.

Has the State of Colorado ever granted or sold land for a purpose like public housing?

You bet. They've sold land. They have all their interests; they sell land, they buy land, they trade it out. They have commercial properties where they have office buildings that are for lease. They have multifamily opportunities where they've participated in either land or vertical side and then just selling land. The predominant drivers for their land interest have been oil and gas and grazing, but they own about 3 million acres throughout the state of Colorado, and this is one of those pieces of their portfolio.

How close is their land to your Sky Ranch or your interchange? Is there anything nearby, or is it 10 miles further away?

Yes, it's very close. It's four miles directly south. If you look at our website, you'll find many images showing our service area and its proximity. Some of our presentations include drone imaging that illustrates on one side of the road a number of developed houses, while on the other side, there is vacant land where the Lowry Ranch begins. The metro area has expanded to the Lowry Ranch, making it well-positioned for opportunities.

Okay. Final question, Sky Ranch, the build-out, you don't need to acquire any land in order to continue growing for the next, what, five years? Is the absorption of Sky Ranch would take five years?

Yes. I would say most of the residential should be wrapped up in that cycle. Some of the commercial may still tail on depending on how we participate in that. You're right, that's baked in. You take a look at the guidance that where we think we can monetize both the land and the land, the water and the single-family rentals on that, that $600 million really is just what we own at Sky Ranch.

I guess one of the concerns investors may have is that you're tying up capital in the rental units. If you do make another land acquisition paid on the deal, that's capital that won't get a return for five years possibly. But I don't know if you want to comment on that.

Yes, the cycle of land development, certainly, you're not wrong. When you buy raw land, the time to entitle it and start developing it could be a little bit longer. The issue for us is to ensure that we allocate that capital so we're not over our skis and we can continue to invest in the land development at Sky Ranch. I think we're ideally positioned to do that. To the extent that we get a large enough land acquisition that would be beyond what our liquidity position might want to support, that's something we can take a look at monetizing our single-family rental portfolio. We can bundle that up, sell that out and use that rather than our equity to acquire some land interest and replace it. It's a very attractive investment, not only because of the tax advantages to it but the equity carry forward and the ability to monetize it in the event that there's an opportunity to do that.

You're suggesting like a 1031 exchange where you exchange your rentals for...

Yes, something like that.

Okay. Yes. I don't want to thank you for everything. Thank you for the call.

You bet. Any other color I can layer in?

Yes, Mark.

Please.

This is Dan Kozlowski calling in, Board member. I'm not in the room today due to a scheduling conflict, but good call. I think this is one of the better calls and a good quarter in a seasonally slow time. It speaks to the robustness of the model where these slower quarters are less slow and still stacking on some earnings growth, which is great. Just a couple of observations. I kind of listened today and the caller questions, I think, are at a higher level, and everyone is kind of really understanding the business model better and better each quarter. That's great. To pivot off a few things, the interchange process, I'm glad you brought that up today and spoke about it because it is a big opportunity. If you drive out there, you see there's a fine off-ramp. I guess you call it an interchange today. The ability to control and work with Arapahoe County and have the outcome of that interchange be favorable towards our sections that we're going to develop a lot of it commercially is a huge opportunity. You've put a lot of time and work into that, and more disclosure today, I think, is good. It has slowed us down a little bit to do some regulatory caps and how all that works in the past.

Once that is in process and moving, I think it will free us up to make us more flexible in terms of pacing of absorption. Maybe you can comment on that a touch if you want. A second part of that is how do you think about commercial in terms of your classic retail, commercial build-out, the grocery stores, the drug stores, the software that go around a community versus going either earlier at the same time and doing it in an aesthetic way but adding light industrial warehousing, that type of thing that could also be sellable at really good prices anytime? Yes. All good questions and really good things to kind of throw a little color into this. The interchange is a great asset, a great opportunity, and one that we've been planning for since we started construction of the project. We're well positioned on that. It's a long lead cycle, so we have been early to try and get that through the system and through that process, both with the county and CDOT. I do think that as Geoff sort of highlighted in his chicken and egg analogy is that it does open up. While it's not constraining some of the commercial activity, I think commercial activity is really lagging behind some of the residential activity. We wanted to time those two out such that when the residential was good, we didn't have any constraints on the transportation. The attractiveness of having a bigger, fuller scale interchange is an important component. Some of the commercial, one of the things that is key for the company to keep their pulse on, we have veteran experience on that that help guide us. Through his help and participation, we've developed a commercial model for that, that accommodates all of those things that Dan was talking about, whether you have space because we've got about 160 acres. Space for the light industrial, big distribution centers provide tremendous assessed value that brings a lot of revenue into the reimbursable side. We have components of that for multifamily, where we've got apartment complexes and talked with a number of different apartment developers and various models where we can help participate with that. That model looks like bringing our water and land into the equation; somebody goes vertical with that. That's when we get it fully leased out and sold as a package. The exit becomes fully developed when you have a fully improved lot for a particular use like multifamily. That could be anywhere between 500 and 1,000 units of multifamily depending on how that configuration goes. Grocery, fast casual, services, fuel; all that stuff gets built right around that. Those are all extremely high-value land interests where we can keep some of those units available, work with, partner with commercial developers and get those facilities leased out and then selling those to maybe REITs and other entities that participate in that cash flow. As we look at all those options, we have expertise on the board from someone who's done it, who spent his career. He's got 30 years doing specific commercial development in the Denver area. We're very excited about that. We look at that guidance as we move into the commercial side. So good question, Dan, and a nice way to highlight our transitioning from a core of strictly residential to moving into that commercial side.

I have a few observations. Listening today, it seems that the callers' questions reflect a better understanding of our business model each quarter. The finished-lot approach we adopted during Phase 1 is becoming clearer to our long-term shareholders. Even in challenging times, such as fluctuations in interest rates, the impacts of COVID, or changes in government leadership with different strategies for addressing opportunities and challenges, there are always various factors at play. Homebuilders have solid businesses and are adept at managing their risk. They have generated significant profits and have been strong stocks for over a decade. They primarily seek the ability to invest cash in lots and start construction quickly. Our model, which requires more capital to complete all the lots, is appealing to them. When reviewing their national portfolio, they clearly have an interest in Colorado. As they continue to develop phases and sub-phases in Colorado, they consistently provide buildable lots promptly. Those are the situations where even when homebuilders take 90-day pauses or similar breaks, there's still a strong desire to buy from us and quickly start construction while keeping carrying costs low. This business approach truly protects us during cautious times like these. If they can purchase and start building, it significantly enhances our sustainability and consistency. I believe this is recognized by some of those familiar with Pure Cycle, while others who are newer may not fully grasp it. Given the fluctuations in our stock price alongside the homebuilders, it seems that the market doesn't completely appreciate our discussion about demand. While there's general demand in the Colorado market, I have observed over the past five years that there is always demand for our finished lots. It's important for everyone to understand this key point. The second thing that I'd say is partially understood, but not fully. The nature of Sky Ranch and any development is the cash flow is very much back-end loaded. If all we did on Sky Ranch is develop 1,000 lots, we're going to do many thousands. But if it was just 1,000 lots, I think what we have seen was the first 500 were pretty good. The last 500 would be massively cash-flow generative, as you're winding down a smaller project. All that cash comes over the transit. I've done some rough math on it. It seems very disproportionately cash-flow generative in the second half of the project.

You're right; Sky Ranch is large, with 3,500 to 4,000 homes along with commercial spaces. The financial returns are mainly expected in the latter stages of development. Now that we are nearing 1,500 lots, we're approaching the halfway point for Sky Ranch. As we progress through the development, the dynamics of cash flow and margins will significantly improve. This could pleasantly surprise people in the next 12 to 24 months. Most of the cash flow benefits will arise in the latter part of the project, and we are quite close to that now, which is exciting. If there's no other comments, certainly if anybody has got something that they didn't get a chance to ask or want to just drill down privately, go ahead and give me a call. I'm always available. We do like doing these kind of road investor meetings. We'll try and see if we can set something up, maybe in the Midwest or perhaps on the West Coast. I've got some good friends and shareholders on the West Coast that have been itching for us to come out and organize a sit-in. I will tell you this format is very helpful where we can engage in a dialogue like this. The reaction from some of the folks that attended the meeting in New York was overwhelming. When you see it, when you roll out maps and get that tangible evidence as to how the Denver market is positioned regarding I-70 and how the growth of the metropolitan area goes, it provides a compelling argument for what we're doing, not only what we have in inventory but what our opportunities are.

Thanks, Mark.

Thanks, all.